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Sydnee Gatewood
Sydnee Gatewood
Articles (2730) 

Warren Buffett Dials Down DaVita Stake

Guru trims long-held position in dialysis provider

Warren Buffett (Trades, Portfolio), head of Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), disclosed this week his firm reduced its stake in DaVita Inc. (NYSE:DVA) by 5.25%.

The legendary guru, who leads the Omaha, Nebraska-based insurance conglomerate, follows a long-term value investing approach that focuses on companies that have understandable business models, favorable long-term prospects and competent management teams that are available at attractive prices.

According to GuruFocus Real-Time Picks, a Premium feature, Berkshire sold 2 million shares of the Denver-based health care company on Sept. 17, impacting the equity portfolio by -0.09%. The stock traded for an average price of $90.14 per share on the day of the transaction.

Buffett now holds 36.09 million shares of DaVita, which represent 1.61% of the equity portfolio. GuruFocus estimates he has gained 95.14% on the investment since establishing it in the fourth quarter of 2011.

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The company, which provides kidney dialysis services, has a $10.29 billion market cap; its shares were trading around $84.35 on Tuesday with a price-earnings ratio of 13.31, a price-book ratio of 4.78 and a price-sales ratio of 0.97.

Although the share price is currently near a 10-year high, the GuruFocus Value Line indicates the stock is fairly valued. The valuation rank of 8 out of 10, however, leans more toward undervaluation.

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On July 30, DaVita announced its second-quarter results. It posted adjusted earnings of $1.95 per share on $2.8 billion in consolidated revenue.

In a statement, CEO Javier Rodriguez commented on the company's performance in light of the Covid-19 pandemic.

"The continued efforts of our 65,000 teammates in the face of this crisis, while caring for our patients and for each other, are truly inspiring," he said. "They are working tirelessly to embody the DaVita name 'to give life' to over 236,000 patients worldwide."

After issuing a $1.5 billion senior notes offering in August, DaVita announced the results of a $1 billion "Dutch auction" tender offer of its common stock on Sept. 17. The purchase price ranged between $77 and $88 per share.

GuruFocus rated DaVita's financial strength 4 out of 10. While the company has issued $522.07 million in new long-term debt over the past three years, it is still at a manageable level due to having adequate interest coverage. The low Altman Z-Score of 1.49, however, warns it could be at risk of going bankrupt.

The company's profitability fared better, scoring an 8 out of 10 rating on the back of strong margins and returns that outperform a majority of competitors. DaVita also has a high Piotroski F-Score of 7, which implies business conditions are healthy, and consistent earnings and revenue growth that contribute to a predictability rank of 3.5 out of five stars. According to GuruFocus, companies with this rank post an average return of 9.3% annually over a 10-year period.

With a 29.59% stake, Buffett is still the company's largest guru shareholder. Other top guru investors include Larry Robbins (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Joel Greenblatt (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), First Eagle Investment (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Francis Chou (Trades, Portfolio) and Ray Dalio (Trades, Portfolio).

Portfolio composition

The guru's $202.41 billion equity portfolio consisted of 44 stocks as of June 30. A majority of the portfolio was invested in technology stocks at 45.76%, while the financial services sector has a weight of 31.72% and the consumer defensive space represents 15.01%. Health care stocks had a much smaller representation at 1.85%.

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Other health care companies Buffett was invested in as of the end of the second quarter were Teva Pharmaceutical Industries Ltd. (NYSE:TEVA), Biogen Inc. (NASDAQ:BIIB) and Johnson & Johnson (NYSE:JNJ).

Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

Rating: 4.0/5 (2 votes)

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Comments

Praveen Chawla
Praveen Chawla premium member - 3 weeks ago

The company has been buying back a lot of stock. 3 year buyback ratio is an amazing 13.5%,

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